Digital First CEO John Paton discusses future

A question and answer session with John Paton, CEO of Digital First Media, parent company of The Times Herald and timesherald.com, on the future of journalism:

Digital First Media announced on Friday that the sale of Journal Register Company newspapers is complete. After JRC’s second bankruptcy in three years, the company was bought by 21st CMH Acquisition Co., an affiliate of funds managed by Alden Global Capital, the hedge fund that now owns Journal Register. (Digital First Media manages JRC and another newspaper company, MediaNews Group.)

If it sounds a bit complicated, that’s because it is. But Digital First Media CEO John Paton says the bankruptcy was all part of a strategy to eliminate burdensome costs from a long history in print so that the company can reinvent itself for a digital age. DFM reporter Adrienne LaFrance sat down with Paton in Digital First Media’s New York City newsroom Friday afternoon.

Q: Start by telling me the most significant thing emerging from bankruptcy — the sale of Journal Register Company — enables this company to do.

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A: The process allowed the company to shed a bunch of legacy obligations it could never afford that it incurred when it was a much bigger company. The Journal Register incurred most of its long-term debt, most of its pension obligations, most of its lease obligations when it was nearly twice the size the company that it is today, which is kind of what’s happening to newspaper companies.

The Journal Register Company, I would put against any newspaper company in the country — 2012 over 2009 — fastest growth in digital revenue, I am sure. But it was never going to be enough to pay for all its obligations. This process, as tough as it was, let it clean up its balance sheet; the amount of debt that it owed. It let it renegotiate defined benefit pension plans for defined contribution plans, which the company can afford. To the best of my knowledge there’s not a single retired employee who’s affected by that.

The company saved millions of dollars in leases, got out of two production facilities, three circulation facilities and was able to — in negotiations with the unions — was able to rewrite a number of contracts. The company’s now able to afford its legacy business while funding its new business. And it took seven months to the day to do that.

Q: What was the biggest unanswered question you had going into this process?

A: The biggest uncertainty for me was could we hold employees’ trust going through it. We had a remarkable run from late 2009 to 2012 as a company. The company was doing exciting things — is doing exciting things! — in that transitional space.

But the second we had to take what really is a financial re-engineering step, a lot of bad publicity started. And it seems to me that much of it was around the idea that Digital First is bankrupt of ideas as opposed to a strategic, financial and necessary bankruptcy from a financial-engineering point of view.

I worried all through the seven months that maybe employees would think the plan is wrong, when indeed the plan was right. That financial re-engineering step actually addressed key elements of the plan. I worried a lot about that.

Q: What’s your sense of where that level of trust is today?

A: We have to deliver. We’re going to have to deliver on a future. We’re going to have to deliver on raises. We’re going to have to deliver on results. That’s the only way to make sure that that trust holds.

Q: What’s the most frustrating misconception you’ve seen? If you could issue a mass correction for people who’ve covered this, what would it be?

A: Wow. The one thing about when you’re in the media business is you employ talented, independent people so you can’t complain when they don’t work for you anymore when they’re both talented and independent and they criticize you. So I don’t have any complaints per se about the coverage other than how I thought some of the coverage might worry employees. If I have a general complaint, my general complaint is that people may have mistook a smart, financial re-engineering step as a problem for Digital First as a strategy and as a company. And it was neither.

Q: I’m curious to hear your philosophy on how a media company can navigate the space between having a clear vision and executing strategy but also staying iterative and respond to the changes of the industry as they happen.

A: By putting the digital people in charge. I mean, with Jim Brady, for example, in charge of all content, I don’t have anybody with a legacy background there. His time even in legacy companies has been on the digital side. Jim’s not constrained in his thinking about where we ought to go. But since he’s the leader, we end up being focused on a more futuristic agenda than the past. So I don’t worry about thinking and I don’t worry about execution. My partner, Jeff Bairstow, is very good on an operational level and making everybody understand that as difficult as they might find it, they’re going to be following the leadership of a Jim or the leadership of a Ray Chelstowski on the sales side, which is all-digital. That’s the only way to do it. You put those people in charge, and then you make sure from an operational-executional point of view that everyone understands they must do what gets done.

Q: When you think about back to when you came up with the name Digital First, if you were naming the company today would it be Mobile First or some other name?

A: Digital First is my name. I’ve been saying it long before I got here. The name originally was to say very loudly — in a headline kind of way — that what we thought we did in newspapers, we had to change dramatically. And that, of course, meant digital first. And actually “digital first, print last.” I wanted to hammer home that this idea about the Web as something else we do was ridiculous. The Web was and it should be what we do. Print is something else that we do, which happens — at this moment in time — to have almost all the revenue. But that’s not going to be our future. It was something that I named to try to hammer home that message. It’s kind of funny — I don’t think they have a “digital first” strategy at Google. They have a strategy. The name, hopefully, if we’re successful, becomes very dated.

Q: I was saying this to a colleague recently: It’s sort of like naming something Accurate Newspaper.

A: Yeah. Maybe it’ll get shortened to its initials.

Q: Like NPR. You mentioned something that reminded me of a quote I wanted to read to you, and see what your response is. Felix Salmon wrote this the other day: “In a dying industry, the sensible thing to do is to maximize your revenues before you die. Paywalls might well make money for newspapers. But that doesn’t mean that newspapers aren’t dying.” What do you think?

A: Well, he’s rewriting an old axiom that says, “you milk cash cows to feed stars and you shoot dogs.” That’s a traditional transitionary business thing. I don’t think paywalls are the answer to anything. If we’re swapping out print dollars for digital dimes, I think paywalls are a stack of pennies. We might use the pennies in transition to get where we’re going.

Newspapers in print are clearly going away. I think you’re an idiot if you think that’s not happening. I don’t think that news organizations are dying but are newspapers going to stop running in print? Yeah. Absolutely.

Q: At DFM, what aspect of operations are still too tethered to print-era operational structures?

A: I think we still are too afraid to take the kinds of risks we need to take because there’s so much money tied up in print. We have $1.3 billion in revenue. And of $1.3 billion, $900 million is advertising and $165 million of the advertising is digital advertising. Four years ago, that was almost nothing. That $165 (million) is going to have to more than double in three years. To do that, we’re going to have to take some risks on the print side. That’s the one thing that scares the (expletive) out of everybody.

Q: So what specific steps is this company taking to make sure it’s not left behind.

A: When I got to JRC in late 2009, we had 19 press halls. In the next couple of months we’ll have four. So from a legacy perspective, half the costs are in production and distribution. And those we’ve just hammered down dramatically and re-invested into the digital piece. Those are the kinds of big steps we have to keep taking. And in the meantime, we spend more money today on digital, editorial and advertising — at the Journal Register Company — than we used to in 2009. But overall, expenses are down.

Q: I’m curious to hear how you’re thinking about Thunderdome (the Digital First Media newsroom headquarters that opened last summer), specifically, has changed. Maybe in the past year or six months.

A: That I dreamt it before I did it, you mean?

Q: How are you looking at it now in a way that’s different than how you looked at it six months ago.

A: It’s got to move faster. I think it has to be more independent. It’s my job to figure out the encumbrances between the print assets and the digital assets. And it’s my job to ensure that digital, if it’s going to be our future, is well funded and has as fast a path to success as possible.

I’m beginning to think that the very best way I can do that is to have it stand alone separate so that it can — unencumbered from the print piece — be able to do things we think it should do as a content company and as a sales company in the digital space.

Q: What kinds of things would that open it up to do that you’re not doing now?

A: Other customers, for a start. Not just JRC and MediaNews Group but other customers.

Q: So an Associated Press model?

A: Maybe. Maybe. I think something much more exciting and better than that.

Q: Finally, what’s the last print newspaper you read — actually held in your hands and read?

A: This morning. It was The New York Times.

Q: Do you always read the Times in print?

A: I read the Times in print almost every day.

Q: Old habits die hard.

A: I love newspapers. I’m a newspaperman. My father was a printer. I started off as a copyboy. I love newspapers. But they don’t love me anymore.